Violation of Banking Industry Standard of Confidentiality Creates Liability
Weissman, Michael L., The RMA Journal
Sharing of credit information to contribute to the industry's overall strength is a good thing, right? Maybe not if a borrower ends up suing you for breach of confidentiality, as this case will show. (1) Ary Jewelers sued IBJTC Business Credit Corp., claiming IBJ "wrongfully" interfered with its efforts to obtain financing from another lender. The court decided IBJ had indeed interfered.
Ary Jewelers was a limited liability company and a part of the Ary Group, a multinational, billion-dollar enterprise located in the United Arab Emirates. Ary Group was headed by Abdul Razzak. For many banks reeling from SAR [suspicious activity report] anxiety, that could automatically set off alarm bells. But this story begins more than a year before 9/11.
In early 2000, Ary wanted to enter the U.S. retail jewelry business and seized the opportunity to purchase the stock of Krigel's, a privately owned, family-operated chain of jewelry stores. Krigel was in bankruptcy, so Ary executed an agreement to purchase the stock of Krigel and take it out of bankruptcy.
Foothill Capital Group had financed Krigel's both before and during bankruptcy. Ary approached Foothill for financing, but Foothill's terms for Ary were less favorable than they had been for Krigel's, so Ary approached other lenders.
IBJ provided Ary with a term sheet on January 24, 2001. Ary accepted, and the parties negotiated for a final agreement. However, no final agreement was ever reached, because IBJTC withdrew its offer after discovering a news article stating that Mr. Razzak had been charged by Pakistani authorities with paying a $10 million-dollar bribe to obtain a multi-million-dollor gold importation contract for Ary.
IBJ didn't just withdraw its offer for financing, though; it also quickly let Foothill know what was going on, and IBJ personnel even faxed copies of the articles about the bribe charges to Foothill. …